Harris County v. Xerox Corp., 17862

• Decision Date: 30 April 1981
• Docket Number: No. 17862,17862
• Citation: 619 S.W.2d 402
• Parties: COUNTY OF HARRIS, Texas et al., Appellants, v. XEROX CORPORATION, Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 402

619 S.W.2d 402

3 ITRD 2027

COUNTY OF HARRIS, Texas et al., Appellants, v. XEROX CORPORATION, Appellee.

No. 17862.

Court of Civil Appeals of Texas, Houston (1st Dist.).

April 30, 1981.

Rehearing Denied May 21, 1981.

Joe Resweber, Paul Bibler, Edward Cazares, Cheryl Helena Chapman, Houston, for appellants.

Larry D. Thompson, William K. Luyties, Houston, for appellee.

Before COLEMAN, C. J., and SMITH and REDEN, JJ.

SMITH, Justice.

This is a declaratory judgment suited filed by Xerox Corporation requesting the court to declare unconstitutional certain ad valorem taxes assessed against it by the City of Houston, the Houston Independent School District, Harris County, and the State of Texas, and seeking injunctive relief. The trial court entered judgment declaring the taxes unconstitutional and enjoined the collection of the taxes.

The question presented in this case is whether nondiscriminatory ad valorem taxes assessed by state and local taxing authorities are violative of the commerce clause and the import-export clause of the United States Constitution where assessed against imported property stored in local customs bonded warehouses awaiting sale and shipment to a foreign country.

Xerox is incorporated under the laws of the State of New York and is authorized to transact business in the State of Texas. It is a manufacturer and seller of copier machines, engaging in both domestic and international commerce. It has affiliate companies in several foreign countries for the purpose of meeting certain governmental requirements of the respective countries as well as gaining certain benefits.

In the instant case Xerox manufactured its parts in Colorado and New York and transported these parts to a warehousing facility in Rochester, New York. To meet the requirements of the Latin American Free Trade Association (LAFTA), ¹ Xerox established an affiliate company in New Mexico City to assemble copiers which would be functional in countries whose national language was either Spanish or Portugese.

To get parts to its Mexican affiliate, Xerox shipped its unassembled parts from Rochester to Laredo, Texas, and thence, by truck, to Mexico City, where the machines were set up and adjusted by Mexican labor trained for this purpose.

Mexican tax laws made the warehousing of the copiers in Mexico economically unfeasible; therefore, Xerox, up to the year of 1974, shipped its assembled copiers to the Free Trade Zone of Panama, where it had to pay no taxes on its warehoused merchandise.

In 1974, the Panamanian government and its people become hostile to American companies. Xerox made the decision not to jeopardize its merchandise in Panama and, after a search for another warehousing facility, decided to ship its products to Houston, Texas, because of its excellent port facilities.

Xerox shipped the assembled copiers under bond from Mexico City by truck to Nuevo Laredo. The copiers were brought across the border under bond and placed in customs bonded warehouses. The machines were then transported by bonded trucking companies from Laredo to Houston, where they were placed in customs bonded warehouses. The uncrated machines remained in the warehouses, segregated from other merchandise, until Xerox obtained a sale. When a sale was obtained, the packaged machines were removed from the warehouse under bond and remained under bond until placed aboard a deep-water shipping vessel at Houston or Miami, to be transported to a Latin American country. No import taxes were ever assessed against these imported copiers by the United States.

Xerox maintained other warehouses in Houston for copiers that were to enter domestic commerce, and ad valorem taxes were paid on these. None of the imported copiers from the customs bonded warehouses were ever sold to customers for domestic use. No taxes were assessed on the imported machines by the local taxing authorities against Xerox in 1974 and 1975. In 1976, upon request from Xerox, Harris County, Texas, through an authorized deputy of the Tax Assessor-Collector, issued an exemption on the imported warehoused merchandise located in Houston. In 1977 the City of Houston ² assessed taxes on the imported warehoused copiers and Harris County ³ followed by assessing taxes for 1977 and back assessing for the year of 1976.

In this suit we are concerned about the taxes for years 1976 and 1977 only, for the reason that as soon as Xerox was apprized that it was being assessed taxes on its imported copiers, it shipped all such merchandise to Buffalo, New York, a free trade zone location.

On assessment dates, January 1, 1976 and 1977, virtually none of the copiers in the warehouse had been sold or otherwise committed and none had been consigned to a common carrier. The length of time in storage varied from a few days to three years. The two model lines most numerously stored averaged seven and one-half months for one and twenty-five months for the other.

The parties agree that the ad valorem taxes levied were uniform non-discriminatory taxes on property, not based on origin or destination of goods. There is no claim by Xerox that the taxes were, in any manner, not properly assessed, except that they were unconstitutional as applied to the copiers in question.

The appellants assert as their first point of error that the trial court erred in finding that the copiers were not subject to state and local ad valorem taxation under the import-export clause of the United States. We agree.

Article I, Section 10, clause 2 of the United States Constitution, commonly referred to as the "import-export" clause, states as follows:

No state shall, without the consent of congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection law...

Section 8 of Article I of the United States Constitution commences by stating: "The Congress shall have the power to lay and collect taxes, duties, imposts and excises...." It is manifest that the framers of the United States Constitution were addressing specific problems in limiting Section 10, clause 2 of Article I to "imposts and duties." The words "taxes" and "excises" are conspicuous by their absence from this section.

The position of Xerox in this suit was the law of the land, prior to 1976. Brown v. Maryland, 12 Wheat. 419, 6 L.Ed. 678 and Low v. Austin, 13 Wall. 29, 20 L.Ed. 517. However, in that year the United States Supreme Court in Michelin Tire Corporation v. Wages, 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d 495, overruled Low v. Austin and held that a nondiscriminatory ad valorem tax did not infringe upon the import-export clause where the imported goods were no longer in transit. Immediately thereafter, the Texas Supreme Court, relying on Michelin, reversed its holdings in City of Farmers Branch, et al. v. Matsushita Electric Corporation of America, 537 S.W.2d 452, 454 (1976) and in City of Farmers Branch, et al. v. American Honda Motor Company, Inc., 537 S.W.2d 454 (1976) and held that "The ad valorem tax imposed by Farmers Branch is clearly nondiscriminatory and applicable to all such stored goods whether imported or not."

The question then arises, were the copiers involved in our suit still in transit? We think they were not.

The courts have established criteria to determine whether goods are in transit, i. e. (1) was there a stoppage in transportation, and, if so, what was the purpose of the stoppage? (2) at the time of taxation was the final destination of the goods determinable? and (3) was the stoppage a necessary delay or accommodation to the means of transportation, or for business purposes and profits of the company? See Independent Warehouses v. Scheele, 331 U.S. 70, 67 S.Ct. 1062, 91 L.Ed. 1346 (1947); Michelin Tire Corporation v. Wages, supra; Calvert v. Zanes-Ewait Warehouse, Inc., 502 S.W.2d 689 (Tex.1973).

Applying these criteria, we find that there was a transportation stoppage of the warehoused copiers and that such stoppage was occasioned for business purposes of Xerox; that on taxation day the final destination of the goods was not determinable, as the property had not been sold or committed to further transportation; and that the business purpose in stoppage was profits for Xerox. We hold the warehoused Xerox copiers were no longer in transit.

The appellee also urges that the copiers were in the custody of customs officials stored in customs bonded warehouses, and that under such circumstances the federal government has preempted local taxing authorities by taking sole control. We cannot concur in this view. The California courts in American Smelting and Refining Company v. The County of Contra Costa, 271 Cal.App.2d 437, 77 Cal.Rptr. 570 (1969) held contrary to Xerox's position and the Federal courts have not set aside or overruled that opinion. We are of the opinion and so hold that the storing of imported goods in a customs bonded warehouse in and of itself does not preclude local authorities from assessing and levying a nondiscriminatory ad valorem tax under the import-export clause of the United States Constitution absent Federal legislation or regulation to the contrary.

Appellee further asserts that its inventory of copiers is exempt because they are exports. This contention was rejected in Kosydar v. National Cash Register Company, 417 U.S. 62, 94 S.Ct. 2108, 40 L.Ed.2d 660 (1974), where in the Supreme Court set forth the test that the movement to foreign shores must be started or committed to be moved for an export to be exempt from taxation. There being no sale or commitment to sell and no movement or commitment to move, the export exemption does not apply in this case.

Appellants' first point of error is sustained.

The appellants' second point of error asserts that the trial court erred in concluding that the property was not subject to nondiscriminatory ad valorem taxes under the Commerce Clause of the United States Constitution.

Article I, Section...